Annual Reform Recommendations from theGovernment of the United States to the Government of Japan under the
U.S.-Japan Regulatory Reform and Competition Policy Initiative
October 15, 2008

The U.S.-Japan Regulatory Reform and Competition Policy Initiative (Regulatory Reform
Initiative) remains an important vehicle for promoting reforms that help spur economic growth
as well as for further deepening the economic and trade relationship between the United States
and Japan. In this respect, the United States looks to Japan to continue to pursue a path of
meaningful, growth-oriented reform.
The United States’ recommendations to Japan in this eighth year of the Regulatory Reform
Initiative outline areas where new progress can be made that would, for example, help further
remove or streamline unnecessarily burdensome barriers to trade and economic activity, improvethe business environment such as by enhancing the transparency of regulatory processes, andstimulate new business opportunity through enhanced competition and through the opening of
new markets to better serve consumer needs.
The United States has proposed a broad array of recommendations for Japan take new measures,consistent with the above-mentioned objectives, in the areas of communications, information
technologies, intellectual property, medical devices and pharmaceuticals, competition policy,
commercial law and legal systems, transparency, privatization of government corporations,distribution, and agriculture, among others.
Recommendations submitted by both the United States and Japan are discussed over a period ofseveral months in four Working Groups covering telecommunications, information technologies,
medical devices and pharmaceuticals, and cross-sectoral issues, as well as separately at a seniorlevel in the High-Level Officials Group. Progress achieved as a result of this work is thenreflected in the Initiative’s annual Report to the Leaders.
The Government of the United States continues to look forward to constructive discussions on its
recommendations and also welcomes receiving recommendations from the Government ofJapan.

TABLE OF CONTENTS
RECOMMENDATION HIGHLIGHTS ............................................................3
COMMUNICATIONS ...............................................................................4
INFORMATION TECHNOLOGIES.............................................................4
MEDICAL DEVICES AND PHARMACEUTICALS ............................................5
FINANCIAL SERVICES ...............................................................................5
COMPETITION POLICY............................................................................6
COMMERCIAL LAW AND LEGAL SYSTEMS REFORM...................................6
TRANSPARENCY ......................................................................................7
OTHER GOVERNMENT PRACTICES ..........................................................7
PRIVATIZATION .......................................................................................8
DISTRIBUTION.........................................................................................8
ANNEX .....................................................................................................1
COMMUNICATIONS ...............................................................................2
INFORMATION TECHNOLOGIES.............................................................5
MEDICAL DEVICES AND PHARMACEUTICALS ..........................................10
FINANCIAL SERVICES .............................................................................16
COMPETITION POLICY..........................................................................19
COMMERCIAL LAW AND LEGAL SYSTEMS REFORM.................................23
TRANSPARENCY ....................................................................................28
OTHER GOVERNMENT PRACTICES ........................................................30
PRIVATIZATION .....................................................................................33
DISTRIBUTION.......................................................................................37

2

RECOMMENDATION HIGHLIGHTS

3

COMMUNICATIONSThe United States continues to monitor Japan’s regulatory reform efforts in the telecom sector in response to
evolving technologies and the growing convergence between telecommunications and broadcasting services.
The United States believes that increased competition and a less prescriptive approach to technology would
foster innovation and offer Japanese consumers greater choice at lower prices. Related to these broad goals,
ongoing issues of interest include the Government of Japan’s preparations for a decision on the reorganizationof the dominant carrier Nippon Telegraph and Telephone (NTT) and plans for drafting a new law to coverconverged services. The United States urges Japan to continue taking steps to ensure a competitiveenvironment characterized by transparent development of regulation for the benefit of new entrants,
competitive carriers, and equipment manufacturers.
RECOMMENDATION HIGHLIGHTS
ensure a competitive playing field for both
wireline and mobile interconnection; promotefacilities-based competition across different
broadband platforms.

Ensuring Market-Based Technology Decisions:Improve transparency and increase stakeholder
participation in policymaking and regulations;promote efficient use of spectrum to increase
opportunities for new services and technologies;
foster a technology-neutral licensing regime whereservice providers can introduce innovativetechnologies.

Developing a Regulatory Framework for
Converged and Internet-enabled Services:
Ensure that any new regulatory framework isdeveloped in a transparent manner and minimizes
burdens on operators while promoting new entry
and competitive opportunities.

Strengthening Competitive Safeguards on
Dominant Carriers: Prevent anticompetitive
behavior by carriers with market dominance as
telecom services move to IP-based networks;_____________________________________________INFORMATION TECHNOLOGIESThe United States’ recommendations seek to promote competition and confidence in government procurementof information technologies (IT), enhance the use of IT in Japan’s financial and healthcare sectors, promote thestrengthening of intellectual property rights (IPR) enforcement and protections, and ensure any revisions in theimplementation of the Privacy Act also enhance the business environment.
RECOMMENDATION HIGHLIGHTS
Health IT: Provide incentives for the use ofinnovative information-sharing technologies;
promote technology neutrality and interoperability;
promote harmonization with international standards.

IPR Cooperation: Continue to cooperate bilaterally
and through multilateral fora to promote strong IPR
protection and enforcement with a focus on the
Asia-Pacific region.

IT-Related Financial Reform: Facilitate alternative
non-bank payment services in the area of electronic
payments; ensure communication and collaboration
between relevant ministries and private sector.

Government IT Procurement: Allow contractors
to own the intellectual property rights to software
they develop; limit vendor liability; prohibit
backdating of contracts; expand use of competitive
bidding rules; improve transparency.

IPR Protection and Enforcement: Promote
innovation and economic growth by strengthening
copyright enforcement, harmonizing approacheswith international best practices, and streamlining
patent procedures.

Privacy: Ensure that any revisions of Privacy Act
implementation enhance consistency andpredictability, and do not restrict trans-border dataflows.

4

MEDICAL DEVICES AND PHARMACEUTICALSThe United States encourages Japan to reform its reimbursement pricing and regulatory systems for medical
devices and pharmaceuticals to foster industry’s ability to develop innovative products and to improve theaccess of patients to such products. Japan’s 2007-2008 “Vision” policy papers called for eliminating the drug
and device lags, developing an internationally competitive industry, and making Japan an attractive investment
destination. The United States supports Japan's goal to end the device and drug lags by using an expected
increase in reviewers to expedite product approvals and by reforming the pricing system to improve incentives
for research and development of advanced medical products.
RECOMMENDATION HIGHLIGHTS
Pricing Reform: Stimulate research, development
and marketing of advanced medical devices and drugs
by rewarding innovation; improve understanding ofpricing issues by increasing industry-government
communication.

reform labeling rules; remove import restrictions;
expedite approvals of minor changes in products.
Nutritional Supplements: Develop a new regulatory
category that would allow for ingredient-specifichealth claims; improve transparency during thedevelopment of health food safety regulations;improve processing time for new and revised foodadditive applications.

Regulatory Reform: Reduce device approval times
by attaining performance goals and hiring morereviewers; cut drug approval times by reforming thereview and clinical-trial consultation systems; foster
simultaneous global drug development; expedite
approvals of minor changes in devices.

Cosmetics / Quasi-Drugs: Streamline the quasi-drug
approval process; allow additional claims forcosmetics that are within the existing scope ofcurrently approved claims; streamline importprocesses.

Blood Products: Implement a pricing system basedon the characteristics of the plasma product industry;_____________________________________________FINANCIAL SERVICESThe United States welcomes Japan’s Better Markets Initiative and its efforts to enhance the global
competitiveness of Japan’s financial markets and regulation. Robust financial and capital markets are essential
for sustained economic growth, efficient capital allocation, job creation, and innovation. In addition to specificmeasures that would improve market efficiency and afford more options to Japanese savers, investors andworkers, the United States requests that Japan continue its recent progress on regulatory reform in the financial
services sector notably by taking action in the following areas.
RECOMMENDATION HIGHLIGHTS
Defined Contribution Pensions: Improve thenational defined contribution pension system byincreasing contribution limits, allowing employee
contributions, allowing early access to funds inspecial circumstances, allowing investment advice
service to all participants, and by introducing adefined contribution pension scheme for public
service employees.

and regulations; further the transparency andpredictability of rule interpretation and inspection
processes.
Credit Bureaus: Promote sound credit underwriting,deter excessive lending and improve consumer
welfare and competitive credit markets by creating alegal and regulatory framework for a credit bureausystem that facilitates more accurate risk pricing for
consumers and small businesses by collecting andproviding fair, open access to comprehensive full-filecredit information.

Transparency: Expand the body of published
written interpretations of financial laws, including byactive use of no-action and interpretive letters;
ensure all stakeholders to provide input on draft laws

5

COMPETITION POLICY
The deterrence of anticompetitive conduct that clearly harms consumers will contribute to a stronger and more
efficient business sector and benefit Japanese consumers and the Japanese economy as a whole. Whilevigorous enforcement by the Japan Fair Trade Commission (JFTC) is crucial to achieve that goal, care must be
taken to ensure that Antimonopoly Act (AMA) enforcement policy does not chill procompetitive conduct andthat the public and the business community have faith that JFTC investigations are fair and impartial. At thesame time, bid rigging remains a continuing problem, and bold measures are needed to address this matter
effectively, including by preventing government officials from assisting in bid rigging activities. The UnitedStates urges Japan to take measures to improve further Japan’s competition environment.
RECOMMENDATION HIGHLIGHTS
fairness of AMA investigations and establish amechanism to resolve procedural fairness
complaints; introduce procedures for protecting
attorney/client confidential communications.

Improving Antimonopoly Compliance andDeterrence: Strengthen measures against cartels;
avoid surcharges on unilateral conduct; review
AMA exemptions on international aviation; improvepre-merger notification procedures; strengthen JFTC
economic analytic capabilities.

Addressing Bid Rigging: Prevent governmentassisted bid rigging and address conflicts of interestby government officials in procurement; expand
administrative leniency programs; improve
procurement practices of local governments.

Improving Fairness and Transparency of JFTC
Procedures: Eliminate or fix the post-order hearing
process to ensure procedural fairness; improve the_____________________________________________COMMERCIAL LAW AND LEGAL SYSTEMS REFORM
The United States recommends that Japan take bold steps to encourage cross-border merger activities in Japanand to improve its commercial law system so that it promotes efficient business practices and management
accountability to shareholders in accordance with best international practices. Japan should also ensure that it
establishes a legal climate conducive to the efficient provision of international legal services, including throughalternative dispute resolution mechanisms, to all parties in Japan that need such services. In today’s hightechnology era, where innovation drives dynamic global competition and innovation incentives are dependent
on the ability of innovators to prevent others from appropriating their technological breakthroughs, it is also
important that the legal system provide mechanisms to punish trade secret thieves without having to publicly
disclose those very same trade secrets. The United States urges Japan to take measures to further improve
Japan’s commercial and legal environments.
RECOMMENDATION HIGHLIGHTS
Promoting Cross-Border M&A: Reform Japan’s
legal system to encourage more cross-border
M&A; adopt reasonable tax-deferral rules for such
M&A transactions; protect shareholder interests
when adopting anti-takeover measures; adopt
simple procedures enabling a foreign company tocovert into a Japanese corporation.

results of proxy votes.
Achieving Legal System Reform: Permit foreign
lawyers (gaiben) to form professional
corporations, allow all law firms to establish
branches throughout Japan; allow Japaneselawyers to associate with international legal
partnerships; simplify minimum qualification
criteria and speed-up approvals of new gaiben
applications; permit gaiben to represent parties in
all international arbitration proceedings; facilitate
criminal prosecution of trade secret theft.

Strengthening Good Corporate Governance:
Ensure the independence of outside directors;
encourage stock exchange rules enhancing thecorporate governance of listed companies; ensuresufficient protection of minority shareholders;encourage active proxy voting and disclose the full6

TRANSPARENCY
Transparent, predictable regulatory and related processes remain fundamental to any positive businessenvironment. While some welcome improvements have been made in Japan in recent years, actual conditions
faced by businesses indicate that such improvements have not been made uniformly across the Japanese
Government. New measures are also necessary by Japan to further improve its business environment andestablish high standards of transparency – including new approaches to improve transparency of Japan’s
government-commissioned advisory councils and related groups, and new steps to ensure that those parties
that must comply with regulations and agency interpretations of regulations have the necessary information to
do so fully. In turn, stronger transparency in Japan’s regulatory processes can also help better ensure that
consumer protection and welfare is most effectively served.
RECOMMENDATION HIGHLIGHTS
Improve Access to Advisory Groups: Implement
new rules to better ensure transparency of and accessfor the public and stakeholders to provide input into
government-appointed advisory groups; develop andpromote transparency best practices for such groups
on a government-wide basis.

Ensure Transparency of Interpretations ofRegulations: Ensure Ministries and Agencies makepublic in writing any statements of policy or
generally applicable interpretations regarding theirregulations.
Promote Transparency in Re-organization ofGovernment Functions: Ensure transparency issecured in any re-organization of government
functions relating to consumer protection in order toenhance predictability and clarity as well as tosecure effective consumer protection.

Strengthen Public Comment Procedures:Lengthen the public comment period; ensure
agencies give public comments ample consideration;
seek views from the public on the effectiveness ofthe public comment system and allow opportunities
to suggest improvements.

_____________________________________________OTHER GOVERNMENT PRACTICESThe United States recommends that Japan adopt new reform measures across a variety of areas to help increase
convenience and remove unnecessary costs, ensure consumer protection, and promote the growth anddevelopment of a more attractive business environment. In the area of agriculture, steps are recommended tofacilitate smooth trade in agricultural products, including by increasing the transparency and predictability ofJapan’s import regime for growers while ensuring Japan’s compliance with science and its obligations under
the WTO SPS Agreement for delivering safe agriculture and food products to Japanese consumers. The
United States also recommends steps to further improve Japan’s insurance market that also increase consumer
protection and choice; help reduce the time and cost needed to construct and operate wind power projects; andimprove the business environment for foreign nationals through streamlined consular requirements.
RECOMMENDATION HIGHLIGHTS
Agriculture Practices: Ensure regulatorycompliance with CODEX standards for organic crop
imports, safe food additives, and testing regimes forpre- and post-harvest pesticides; implement effective
import measures for maximum residue levels thatare the least trade restrictive possible.

Insurance Cooperatives: Require that insurancecooperatives (kyosai) meet the same obligations as
private insurers to level the playing field between
them and bolster consumer protection.
Insurance Issues: Take steps to facilitate newopportunities for independent insurance agents;
ensure the effectiveness of the bank sales channel.

Wind Energy: Consolidate regulatory processes forconstruction and operation of wind power projects.

Consular Issues: Revise re-entry permit rules tominimize burdens on visa holders in Japan

7

PRIVATIZATION
Japan’s privatization and reform of Japan Post continues to command strong interest by the United States as aprocess that holds many potential benefits for Japan’s economy if it is undertaken in a fully market-oriented
manner. The United States also deems it important that these reforms are undertaken transparently and bringabout a level playing field between Japan Post companies and private sector competitors in Japan’s banking,insurance, and express delivery markets, and thus continues to urge Japan to take all necessary steps to ensure
equivalent conditions of competition are achieved.
RECOMMENDATION HIGHLIGHTS
Level Playing Field - Savings and Insurance:
Ensure the new postal financial institutions meetthe same tax, legal, and regulatory obligations andare subject to the same supervisory standards asprivate firms; apply regulation to Japan Postfinancial institutions on a national treatment basiswith other market participants.

Competitive Conditions and New Products:
Create a level playing field in Japan’s banking andinsurance sectors before postal financial
institutions are permitted to underwrite new oraltered insurance products, and originate newlending services and other financial products by
Japan Post.

Level Playing Field - Express Delivery: Apply
equivalent customs clearance procedures for items
handled by Japan Post Service as applied to private
express carriers for similar actions, including
applying the “duty declaration” system to EMS
items; make business disclosures to demonstratethat cross-subsidization is not occurring between
competitive and non-competitive services.

Transparency: Ensure strong transparency in theimplementation of Japan Post reforms, including
providing interested parties meaningful
opportunities for input and exchanges of views as
the process proceeds; ensure the triennial review ofJapan Post privatization is open and addresses theequivalence of competition in the banking,insurance, and express delivery sectors.

_____________________________________________
DISTRIBUTION
Promoting productivity, efficiency and transparency in Japan's distribution system is crucial to support Japan's
economic growth and improve Japan’s business environment. In this regard, the United States welcomes recent
efforts made by Japan to streamline customs procedures. The United States requests that Japan take additional
measures that will help lower distribution costs, improve transparency, and further streamline customs
procedures for all industries.
RECOMMENDATION HIGHLIGHTS
Airport Landing and User Fees: Continue toreduce landing and user fees and promotetransparency in the development of these fees.

Customs Procedures: Take new streamlining
steps that help promote more efficientimport/export processing, including allowing
postmortem declaration of exports and more
flexibility for express carriers to select the customs
office for customs declarations.

De minimis: At least double the Customs Law’s deminimis level to improve efficiency of customs
procedures.

8

ANNEX

Annex - 1

COMMUNICATIONSI.

Ensuring Fair Market Opportunities for Emerging Technologies. Consumer andoperator choice in Japan’s telecommunications market continues to be constrained by an
institutional structure where the Ministry of Internal Affairs and Communications (MIC)
acts as regulator and industrial policy promoter for this sector. Absent moving regulatory
functions to a fully independent governmental organization and divesting government
ownership in specific operators, MIC could benefit from additional procedural safeguards
to ensure impartiality through steps to improve transparency, promote more efficient use ofspectrum, and institute technology-neutral principles.
A.

B.

To foster greater transparency and objectivity in policymaking and revision of
telecom regulations, the United States urges Japan to:
1.

Open the selection process for participation in MIC-sponsored study groups,
to prevent discrimination against any interested stakeholders (foreign ordomestic), and ensure that participation in study groups is based on
objective and transparent criteria;

2.

Ensure that financial or commercial interests of members of study groups
which might benefit from specific recommendations are adequately
identified;3.

Ensure that any stakeholder with an interest in a subject matter addressed bya study group tasked with making recommendations to the MIC has anopportunity to provide proposed solutions and recommendations regarding
the issue(s) under study;

4.

Ensure that proposals made to study groups are all given due consideration
based on their merits, and that no proposal is given preference due toaffiliation with any study group member or based on governmental interestin the entity making the proposal; and5.

Ensure that, where study groups implement testing of new technologies, noentity is given unduly preferential treatment in the participation in such tests(e.g., through access to spectrum, test facilities, etc.).

To enhance the ability of MIC to adapt more responsively to new technologies andservices:1.

Analyze and provide public accounting of incumbents’ unused spectrum, or
spectrum using outdated technology (e.g., Personal Digital Cellular) todetermine criteria to identify “warehousing” (hoarding), and take steps toeliminate it;2.

Develop open and transparent procedures to enable any interested party toformally petition MIC for the development, adoption, change, or deletion ofAnnex - 2rules, and for MIC to act on a petition without requiring study groupinvolvement;

C.

II.

3.

Where MIC or any MIC-affiliated body is involved in any standardization
effort (e.g., 4G) that identifies specific technologies, ensure that suchprocess is subject to full and open notice and comment process, particularly
where MIC will be advocating internationally for any such standard in fora
such as the ITU;

4.

Reconsider the feasibility of introducing auctions for particular spectrum
bands, even only on a limited basis, to make it unnecessary for regulators toevaluate applicants on the basis of specific technologies; and5.

Consider revising service rules for specific spectrum bands to permit
operators to use new technologies, subject to interference constraints,
without new licensing – including use of video transmission services, suchas mobile TV in bands originally designated for voice or data services (e.g.,
700 and 800 MHz bands), or Time Division Duplex (TDD) technologies foruse in bands designated as Frequency Division Duplex (FDD).

With respect to Next Generation Networks (NGNs):
1.

Ensure any network requirements established by NTT involving interfaces
necessary for interconnection with the NTT East or West networks aredeveloped in an open and transparent fashion with all interested parties able
to fully participate in the process (i.e., not discriminating against companies
which have not been selected to participate in NTT-sponsored codevelopment programs);2.

Ensure that any new design by NTT East or West to deploy NGNs
minimizes proprietary solutions that require interconnecting companies toinvest in supplemental equipment; and3.

Ensure that NTT East and West publish plans in sufficient detail and giveadequate advanced notice of proposed network changes to allow competing
carriers ample time to introduce any necessary modifications into their own
network.

Strengthening Competitive Safeguards on Dominant Carriers. MIC is beginning todevelop policies and procedures to again consider fundamental change in the structure of
NTT and its various affiliates. The United States urges Japan to ensure that decisions
coming from this process adequately address means to safeguard competitive opportunities
for new market entrants and equipment manufacturers and that the process is conducted in
an open, unbiased manner without undue influence from NTT itself.
A.

Wireline Interconnection. Considering that application of the current Long-Run
Incremental Cost (LRIC) model will expire at the end of FY2008, and to ensure aAnnex - 3

competitive playing field under changing market conditions:

B.

III.

1.

Re-evaluate whether the LRIC model has adequately broughtinterconnection rates in Japan down to internationally comparable levels;

2.

Require NTT East and West to each set a cost-oriented interconnection rate,consistent with Japan’s WTO obligations, taking into account differing costsof the respective regions; and3.

Eliminate the use of interconnection revenue as a source of crosssubsidization between NTT East and West.

Mobile Interconnection. For calls terminating on mobile networks:
1.

Initiate a study, for timely publication, to determine whether mobile wirelesstermination rates are set at levels that reflect the principle of cost-orientation
under efficient management, consistent with Japanese law; and2.

Analyze NTT DoCoMo’s dominant position in the mobile sector, and thedegree to which any existing mobile carriers exert market power in the sub
market for call termination.

Developing a Regulatory Framework for Converged and Internet-enabled Services.
Rapid advances in technology allow consumers to access content in new ways (e.g. IPTV).
Japan’s regulatory approach needs to be flexible enough to allow innovation but also
ensure that dominant players do not distort competition in this market. It is essential todevelop any new rules for converged services in a transparent and non-discriminatory
manner. Specifically, the United States recommends that Japan:A

Provide an open and transparent procedure for assessing the need for new rules forconvergent services (e.g., IPTV), and analyzing whether broadcasters unduly
constrain competition; andB.

With respect to consumer access to the Internet, clarify the authority and intent of
MIC to ensure that ISPs and telecommunications carriers do not arbitrarily
discriminate against users on the basis of usage of specific protocols, including
peer-to-peer protocols, and review industry codes of conduct governing suchmatters.

IV.

Advancing International Cooperation. Develop a basis for cooperating with like-minded
WTO members to address trade policy implications of Members imposing surcharges oninternational communications in the name of capturing “network externalities.”

V.

Other. Continue to strengthen procedures and conditions for ensuring the impartiality of
regulatory decision-making.

Annex - 4

INFORMATION TECHNOLOGIESI.

II.

Health Information Technology. The United States encourages Japan to promote
adoption of IT that improves the quality and efficiency of healthcare by:A.

Implementing the Grand Design action plan for health IT in a way that istransparent and promotes technology neutrality and interoperability.

B.

Developing comprehensive reimbursement systems that reward use of innovative
information-sharing technologies such as digital archiving, electronic medical
records, and embedded and remote (telemedicine) technologies.

C.

Promoting projects that provide opportunities to test and standardize innovative
health IT in an open and interoperable manner.

D.

Continuing to encourage a wide range of qualified IT vendors to participate ingovernment-sponsored projects used to develop or showcase health IT systems.

E.

Encouraging open dialogue between industry and government on the benefits ofhealth IT and providing meaningful opportunities for interested parties, includinginternational industry groups such as the American Chamber of Commerce inJapan, to present their views on health IT proposals, policies and regulations.

F.

Promoting harmonization with international standards for health records andelectronic medical records, such as Health Level 7 and Digital Imaging andCommunications in Medicine, and ensuring that standards are well tested andvalidated to foster open and practical interoperability.

IT-Related Financial Reform. The Financial Services Agency (FSA), and its Program for
Further Financial Reform, has emphasized the importance of Internet transactions; thedesire for the strategic use of IT to create a vibrant and competitive financial services sector
in Japan; the importance of international openness, compatibility, and perspective; and thegoal of diverse financial products and services for Japanese consumers to deliver superior
customer choice, convenience and competitive costs. To achieve these goals:
A.

Modify or enact regulations to allow for alternative non-bank payment service
providers in the area of online, mobile and electronic payments.

B.

Reaffirm the private sector’s central role in expanding the use of IT in financialtransactions. Ensure that the government works closely with the private sector
when developing legislation or regulation related to e-banking, electronic fundsettlements and payments, online financial transactions, or other online-related
financial activity by providing meaningful opportunities for input from allinterested parties, including technology providers.

Annex - 5

III.

C.

Ensure that any such legislation or regulation is compatible with international
practice, to facilitate and promote both domestic and cross-border online financialtransactions.

D.

Ensure that the FSA works closely with the IT Strategic Headquarters (ITSH) andrelevant government agencies so that IT-related financial reforms are consistent
with Japan’s other IT and e-commerce regulations and policies, to provide
predictability to the private sector.

Government IT Procurement Reform. The United States urges Japan to stimulatecompetition and increase fairness and transparency in government IT procurement by:A.

Increasing Transparency. Increase transparency in IT procurement by taking thesesteps:
1.

Ensure compliance with the Basic Policy for the Public Procurement ofComputer Systems (Basic Policy). Publish by November 2008 a reportmeasuring compliance with and implementation of the Basic Policy. Use
the Cabinet Secretariat’s annual follow-up surveys on Basic Policy
implementation as a resource to prepare the report.

2.

By March 2009, require agencies to provide to the Japanese Government’s
online database, for each IT procurement, such information as the bid
announcements and procurement plans and specifications within one weekof their release. Make this data public on a Japanese Government website
and update the database every week.

3.

Ensure fair, transparent, and non-discriminatory competition for all major IT
procurements by forming evaluation committees that include a broad rangeof experts to encourage and ensure objective evaluation.

B.

Expanding Japan’s Bayh-Dole System. Allow contractors to own intellectual
property rights to software they develop through government-sponsored programsby requiring all agencies to implement by 2009 the April 2007 amendment to theIndustrial Technology Enhancement Act. Require all agencies to use the relevant
provisions of the model contract published by the Ministry of Economy, Trade andIndustry to clarify the rights and obligations of vendors and agencies.

C.

Limiting Vendor Liability. Allow IT vendors to limit their liability to a levelproportionate to the risks they take in government procurement transactions by:
1.

Implementing the Basic Policy’s requirement that defines and circumscribes
the liability of vendors in government IT procurement contracts.

2.

Requiring agencies to use the relevant provisions of the model contract
published by the Ministry of Internal Affairs and Communications (MIC) toaddress liability issues in IT procurement contracts.
Annex - 6

IV.

V.

D.

Banning Backdating. Enforce the Basic Policy’s prohibition of contract backdating
and its requirement that contracts should be swiftly concluded after winning bidders
are chosen. Inform the public that complaints about backdating can be referred to a
designated MIC office, and encourage that office to forward complaints to relevant
agencies.

E.

Expanding Use of Competitive-Bidding Rules. Apply competitive-bidding rulesthat apply to the central government to independent administrative legal entities andgovernment-sponsored private companies.

F.

Clarifying Contract Agreements. Clarify contract agreements by incorporating bothprocurement specifications and awardee proposals in final contract agreements.

G.

Employing “Best-Value” Principles. Enhance the benefits of services procured by
the government by using “best-value” rather than “technically acceptable, lowest
price” techniques to select IT contractors.

Privacy. Based on the June 2007 “Summary of Opinions on the Protection of Personal
Information” (Summary), the Quality-of-Life Policy Council (Council) has been reviewing
the effectiveness of the Act on the Protection of Personal Information (Privacy Act).
Following the Council’s recommendation that Japan should take necessary measures tostandardize various implementation guidelines, the Cabinet Office began discussions in
April 2008 to promote the integration and consistency of guidelines throughout
government. The United States recommends that Japan:
A.

Develop clear, consistent, and predictable privacy guidelines across ministries,
modified only when necessary to conform to the characteristics of individual
business sectors.

B.

Ensure efficient cross-border data flows.

C.

Continue its educational campaign to prevent overreactions to the Privacy Act.

IT and e-Commerce Policymaking. To promote the use of information technology andelectronic commerce throughout Japan’s economy, and to ensure international
compatibility, the United States encourages Japan to ensure that its regulation of IT and ecommerce is transparent and flexible by:
A.

Considering Private Sector Input. Seek and consider private sector input at allstages of policy making from initial deliberations to implementation and facilitate
private sector participation in all government-commissioned IT and e-commerce
advisory bodies. Provide public comment periods of at least four weeks.

B.

Promoting Technology Neutrality. Ensure development of standards that promotetechnology neutrality. Implement laws, rules, and guidelines that promotecompetitive market conditions and give providers and users flexibility to choose
Annex - 7

technologies that best suit their needs.
C.

VI.

Improving Implementation of Rulemaking. Enforce reasonable periods between the
publication of final versions of IT and e-commerce regulations and their effective
dates by providing the implementation dates well in advance so that interested
parties can prepare for the change.

Strengthening the Protection and Enforcement of Intellectual Property Rights. In themutual interest of our countries to further promote innovation and economic growththrough the strengthening of our intellectual property rights (IPRs) regimes, the UnitedStates urges Japan to adopt the following recommendations.
A.

B.

C.

Strengthen Enforcement Against Copyright Infringement. Promote the continued
development and management of intellectual property content by:1.

Clarifying that the private use exceptions in Japan’s Copyright Law does not
apply to the downloading of content from unlawful sources;2.

Updating laws and regulations to provide more effective “notice andtakedown” systems for the removal of infringing content, including policies
to identify infringers and hold them accountable, as well as other measures
to enhance enforcement against infringement online; and3.

Continuing to consider ex officio authority as a tool that will provide policeand prosecutors broader authority to investigate and prosecute copyrightcrimes on their own initiative by removing the requirement of right holder
consent for prosecutions.

Statutory Modernization. Harmonize Japan’s copyright regime with international
best practices to address accelerating technological innovation and convergence, as
well as increasing infringement by:
1.

Providing a full range of civil and criminal remedies against circumventionof access controls and trafficking in tools for the circumvention both ofaccess controls and of copy controls used by rights holders;2.

Bringing Japan’s terms of copyright protection (including for phonogram
producers and performers) into line with global trends, including those of its
OECD counterparts and major trade partners; and3.

Ensuring the availability of deterrent remedies against infringement byadopting a system of pre-set statutory damages.

Proposed Limitations or Exceptions to Copyright Protections and Other Copyright
Related Recommendations. Ensure meaningful and timely opportunities fordomestic and foreign rights holders to contribute and participate in deliberations on
new limitations, exceptions, or the expansion of existing exceptions to copyrightAnnex - 8

protections and other copyright related recommendations by committees involved indrafting copyright related recommendations, including committees within the
Agency for Cultural Affairs. Issues of note include, but are not limited to,decompilation of computer programs; infringement liability of search engines; andexceptions that impact scientific, technical, and medical or educational publishers.
D.

E.

VII.

Patent Procedures. Streamline patent procedures through promotion of work shareefficiencies by:
1.

Deferred Examination System. Provide for a system that ensures patentrights are clearly defined for third parties early in the application process,including reconsidering usage of the three-year deferred examination
system.

2.

Patent Application Prosecution. Implement procedures to identify all
appropriate grounds of refusal at the earliest stage in the examination
process, including grounds specific to dependent claims.

3.

Grace Period. Implement legislation to ensure a full 12-month grace period
for all invention disclosures by or derived from the inventor(s).

Transparency Regarding Other Initiatives. Maintain transparency on initiatives
affecting the application of copyright, including in the digital environment, by (1)utilizing existing fora such as the Information Technologies Working Group to
exchange information between governments on such initiatives; and (2) provide
meaningful and timely opportunities for domestic and foreign rights holders tocontribute to deliberations by relevant government entities including, but notlimited to the Intellectual Property Strategic Headquarters, the Ministry of Internal
Affairs and Communications, and the Agency for Cultural Affairs.

Strengthening U.S.-Japan Cooperation on IPR Protection and Enforcement. Promotefurther cooperation between the United States and Japan to ensure adequate protection andenforcement of IPR domestically and around the world with a focus on the Asia-Pacificregion.

Annex - 9

MEDICAL DEVICES AND PHARMACEUTICALSI.

Input in Healthcare System Changes. The United States encourages the Government ofJapan and its advisory bodies to consult with U.S. industry on proposed reforms to its
healthcare system and fully consider input at all levels and at the earliest possible time from
U.S. industry before implementing any changes.

II.

Medical Device and Pharmaceutical Pricing Reform and Related Issues. The UnitedStates urges Japan to implement reimbursement pricing policies that improve the access ofpatients to innovative medical devices and drugs by taking the following actions:A.

Pharmaceuticals.
1.

Follow up on and systematically implement proposals and action items
discussed by the Government-Private Sector Dialogue for Innovative Drug
Discovery.

2.

Appoint a representative from U.S. industry to Chuikyo’s Drug Pricing
Expert Subcommittee.

3.

Reform the reimbursement pricing system by ensuring that initial prices ofdrugs reflect their level of innovation and maintaining prices of existing
drugs during the patent or data exclusivity period while promoting generics.

4.

Foster the introduction of new and innovative drugs by refraining from
implementing annual price revisions, which undermine the value ofadvanced medicines.

5.

Eliminate re-pricing based on market expansion and new indications toincrease incentives for research on additional indications and to improveaccess to treatments.

6.

Encourage development of innovative medicines by refraining from using
the Foreign Price Adjustment rule to impose downward price adjustments incases where upward adjustments cannot be made.

7.

Apply innovation and marketability premiums across the full range ofpremiums, from the minimum to the maximum limits.

8.

Increase the prescription period for new drugs to 30 days and end the 30-day
limit after a drug is on the market for six months. Use a transparent,science-based method to determine when a new drug should have aprescription period of less than 30 days due to specific safety concerns.

9.

Promote the use of preventive care drugs and vaccines by providing
insurance coverage of drugs and vaccines used to prevent disease and by
broadening the definition of “prevention.”
Annex - 10

B.

C.

III.

Medical Devices.
1.

Eliminate the Foreign Average Price (FAP) rule, which has achieved its goalof narrowing the differential between Japanese and foreign prices
significantly. Until the rule is replaced, use industry-provided list prices anddata only from the four current comparator countries, refrain fromincreasing functional categories subject to FAP cuts beyond those affected
in 2006-2008, phase-in any cuts over two years, and maintain the maximum
price cut of 25 percent and the FAP ratio of 1.5x.

2.

Maintain the 4 percent “R-zone” level in recognition of the special situation
for medical devices, which are grouped in functional categories.

3.

Adjust the ranges of premiums to match those applied to analogous drug
categories. Provide reimbursement incentives to promote introduction of
new devices that face significantly higher costs due to regulatory
requirements that greatly exceed those of other major developed countries.

4.

Provide C1 and C2 reimbursement listings every month instead of quarterly.
Provide a formal physician fee instead of a tentative physician fee for C2
devices at reimbursement listing time. For C2 devices ineligible forreimbursement, provide the formal physician fee quarterly.

5.

Clarify the process by which companies can request higher reimbursement
prices for products that are not reimbursed adequately.

6.

Continue to create new functional categories for new devices that havecertain improved functions over existing products.

7.

Allow the diagnostic imaging industry, including U.S. industry, to present
views directly to Chuikyo’s Subcommittee for the Evaluation of Medical
Technology. Continue to provide incentives for adoption of advanced andless invasive diagnostic imaging techniques that expedite the identificationand treatment of diseases and other health conditions.

8.

Continue to hold study meetings about reimbursement issues for in-vitro
diagnostics (IVDs) with industry, including U.S. industry. Continue toincrease the technical fee for “quick testing of outpatients.”

Blood Products. Implement a reimbursement pricing system that accounts for theunique nature of plasma protein therapies, including high manufacturing costs.

Medical Device and Pharmaceutical Regulatory Reform and Related Issues. The
United States urges Japan to implement regulatory policies that end the drug and device
lags and improve patients’ access to innovative products by taking the following actions:Annex - 11

A.

B.

Pharmaceuticals.
1.

Consult with industry, including U.S. industry, to facilitate Japan’s
participation in simultaneous global development of pharmaceuticals.

2.

Encourage the Pharmaceuticals and Medical Devices Agency (PMDA) tocontinue its efforts to reduce waiting times for clinical trial consultations.

3.

Work with industry, including U.S. industry, to reduce review times for new
drugs by enhancing the review system’s ability to conduct priority andstandard reviews at the same time, improving the question-and-answer
process, increasing the consistency of work within and between review
teams, and upgrading the training of reviewers.

4.

Encourage PMDA to consider less burdensome review requirements for
drugs that already have been approved in countries that have safety
standards comparable to Japan’s.

5.

Reduce the processing time for new drug applications before final approval
by MHLW to two months or less by 2012.

6.

Reduce review times for post-approval changes to the international norm of
three months.

7.

Improve promotion and regulatory reviews of vaccines in tandem withimprovements in regulation for new medicines. Consult with U.S. industry
on preventive-care medicine and vaccine issues.

Medical Devices.
1.

Attain the annual product-review performance goals and work to ensureeach reviewer achieves them. Publish performance data. Assess theperformance in relation to the goals at meetings with industry, including
U.S. industry, twice a year and at meetings of the U.S.-Japan Medical
Devices and Pharmaceuticals Working Group every year.

2.

Increase the medical device review staff each year in 2009-2013 inaccordance with the Action Program for Speedy Review of Medical
Devices. Attain PMDA’s recruitment goal of increasing reviewers to 49 in
fiscal year 2009. Increase efficiency of reviews and approvals throughimproved procedures and effective training.

3.

Expand the scope of devices eligible for third-party review to Class 2
devices.

4.

Issue guidance to speed approvals and reduce requirements for partial
Annex - 12changes by clarifying the minor changes that do not require regulatory
approval, those that may be submitted by notification only, and those that
may be noted in a yearly report. Implement a real-time review process forchanges that are consistent with Food and Drug Administration practice.

IV.

V.

5.

Expand the acceptance of accelerated stability test data as the basis for
product approval in all cases where accelerated testing methods arevalidated by scientific evidence, based on the notification issued by MHLW
on September 5, 2008.

6.

Allow bundling of device applications where scientific and regulatory issues
can be most efficiently addressed in one review. Permit bundling wheredevices or indications for use are similar, supporting data are similar, andreviews can be done by the same group of regulators.

7.

Simplify requirements for raw material data in submissions and eliminate
from Notification 19 the requirement to specify the chemical composition of
raw materials. Ensure Japan’s requirements for biocompatibility testing are
fully consistent with ISO 10993.

8.

Use a system for simple registration of foreign factories in harmonization
with international practices in lieu of the current accreditation system.

9.

Replace the product-specific Quality Management System (QMS)
conformity assessment system with a factory-specific periodic QMS.

10.

Streamline IVD approvals by eliminating the pre-approval evaluation of
IVDs by the National Institute of Infectious Diseases as part of reviews. Set
a rule allowing IVDs to be used between clinical trial and reimbursement.

Blood Products. With the aim of increasing the access of patients to life-saving bloodplasma therapies, United States urges Japan to:
A.

Allow labeling to reflect country of origin and eliminate the system of “voluntary”
or “non-voluntary” labels.

B.

Ensure that neither the Supply and Demand Plan nor other measures restrict theimport of plasma protein products.

C.

Increase efficiency of reviews through measures such as expediting approvals ofminor changes in the manufacture or structure of blood products.

D.

Improve communication to ensure U.S. industry and other stakeholders haveopportunities to provide meaningful input to regulatory authorities.

Nutritional Supplements. The United States urges Japan to:

Annex - 13

A.

B.

C.

Regulatory Categories and Claims.
1.

Develop a new regulatory category allowing for ingredient-specific healthclaims that is consistent with the regulatory frameworks of otherindustrialized nations, including provisions for disqualifications of products
not eligible to bear the claim.

2.

Based on scientific risk assessment, work with relevant stakeholders,transparently review and/or revise the list of nutrients and potency levels for
Foods with Nutrient Function Claims (FNFC) based on scientific risk
assessment.

3.

Work with industry, including U.S. industry, and other stakeholders to findways to improve the transparency and inclusiveness of the approval process
for Foods for Specified Health Uses (FOSHU) so that the category is morepractical for companies to use.

4.

Continue to work with industry in a timely manner to establish andimplement a system to provide information from the National Institute of
Health and Nutrition’s database to consumers as recommended by the
Office of Trade and Investment Ombudsman.

Health Food Safety Regulations.
1.

Improve transparency by providing meaningful opportunities to industry,including U.S. industry, and other stakeholders for input during thedevelopment of regulations related to the safety of health foods, including
opportunities to participate as members of government-sponsored study
groups or panels.

2.

Clarify the process and criteria by which a new ingredient in a nutritional
supplement is classified as a drug ingredient, a food ingredient, or a foodadditive and consider ways to improve the process by comparing the bestpractices of other industrialized nations.

Food Additives.
1.

Maximize the use of existing scientific reviews and assessments including
those by national and international bodies to reach timely completion of new
and revised food additive applications in a science-based and transparent
manner.

2.

Improve the consistency of the process for clearing shipments that havebeen stopped at quarantine stations due to naturally occurring traces ofsubstances classified as food additives, such as benzoic acid and sorbic acid,and develop ways to address the issue systematically.

Annex - 14

D.

VI.

Import Issues.
1.

Continue to consider industry input on ways to make the food importprocess more efficient.

2.

Address other long-standing concerns related to the import of nutritional
supplement products.

Cosmetics and Quasi-Drugs. The United States urges Japan to:
A.

B.

C.

Quasi-Drugs. Increase the transparency and efficiency of the quasi-drug approval
process by:
1.

Introducing new product standards that take industry input into
consideration.

2.

Developing a process to regularly update and publish lists of active
ingredients and of inactive ingredients approved in previous quasi-drug
applications.

3.

Streamlining pre-approval requirements for inactive ingredients to beconsistent with regulatory frameworks in other industrialized nations.

Advertising and Labeling. Enable Japanese consumers to make more informed
decisions by:
1.

Allowing additional claims for cosmetics that are within the scope ofcurrently approved claims and that are supported by scientific data, such as aclaim regarding reducing the appearance of fine lines due to dryness.

2.

Allowing additional claims for quasi-drugs and for cosmetics supported byscientific data, such as those allowed for other products regulated by the
Pharmaceutical Affairs Law.

Other Transparency and Regulatory Issues. Improve transparency and efficiency ofthe quasi-drug and cosmetics regulatory systems by:
1.

Providing opportunities for industry, including U.S. industry, to exchange
views with the participants of the Local Advertisement Controllers’Meetings (Rokushakyo) at the end of or on the margins of those meetings.

2.

Working with industry to develop ways to streamline the import process andimplementing them in a timely manner.

3.

Improving the Ministry of Health, Labor and Welfare’s website to include
additional information in an easily accessible location for consumers and forindustry on the regulatory systems for quasi-drugs and cosmetics.
Annex - 15

FINANCIAL SERVICES
I.

Specific Measures: The United States recognizes the Government of Japan’s Better
Markets Initiative, Better Regulation Initiative, and commensurate efforts to engage withmarket participants in a wide range of financial services. The United States supports
Japan’s aims to take steps to become a global financial center, and further calls on Japan tomaintain its recent progress on regulatory reform in the financial services sector byadopting the following measures:
A.

Disclosure of Large Shareholdings. The United States recommends that Japanreview the revisions to institutional investor disclosure rules for shareholdings inexcess of 5 percent as they apply to portfolio institutional investors who are trading
without seeking control over a business, particularly with regard to reducing thefrequency of required reporting, easing administrative burdens (including throughtechnological improvements) and reducing the scope for leakage of proprietary data
and related speculative activity.

B.

Credit Bureaus. The United States requests an ongoing effort to modernize thecredit information system by creating and implementing a comprehensive consumer
and small business credit information system covering all sectors of financial
services. An effective regulatory framework that enables the collection of, andprovides access to, comprehensive full-file credit information is necessary toachieve this objective. Such a system would foster use of credit information forscore development and use of score-based risk management to offer credit toconsumers and businesses, including decisions to extend credit beyond pre-set
income-based limits, thus promoting sound credit underwriting, deterring excessive
lending, and improving consumer welfare and competitive credit markets.

C.

Defined Contribution Pensions. In recognition of the importance of, and the valueof improving, the national defined contribution pension system in terms of securingincome for the elderly, labor mobility, and investment education, the United Statesencourages Japan to continue its efforts to improve the defined contribution pension
system. Specifically, the United States recommends that Japan: (1) increase the taxdeductible contribution limits to 60,000 yen per month, based on the projected gap
in defined benefit pensions targets and the required replacement rate for pension
incomes; (2) allow employee contributions; (3) allow early access to funds before
the age of 60 in specific circumstances; (4) allow investment advice service to bemade available to participants; and (5) introduce a defined contribution pension
scheme for public sector employees.

D.

Opt-Out for Customer Information Sharing. The United States suggests that, under
the current firewalls deregulation, reasonable opt-out restrictions for institutional
clients should still allow the broad sharing of client information across affiliate lines
for risk management, sound business practices and control purposes, authoritative
senior management, and other appropriate purposes. Practical and efficientapproaches to inform institutional clients of their right to opt out should be
introduced.
Annex - 16

E.

II.

Online Financial Services. The United States welcomes the Financial Services
Agency’s (FSA) better markets initiative, and urges consideration of the following
online financial services elements:
1.

Modifications to the exchange transaction definition to permit non-bankpayments providers to engage in exchange transactions such as remittancesand online payments.

2.

Clarification of the regulatory framework to facilitate open-loop electronic
stored value or e-money similar to the European Union or United States.

3.

As exchange transactions fall under the bank regulation and could beinterpreted to prohibit provision of simple peer-to-peer payments without abank license, consider global best practices for pre-paid and stored value
oversight.

Transparency
A.

B.

The United States recognizes the FSA’s ongoing efforts to engage in dialogue withthe private sector, and appreciates the FSA’s publication of periodic progress
reports on Better Regulation. While regularized discussion provides one basis forthe exchange of viewpoints, official written interpretations reduce uncertainty,
enhance compliance and allow for productive innovation by financial services
providers. The United States encourages the FSA to continue to enhance theeffectiveness of written interpretation, including the no-action letter and related
systems, including by:1.

Encouraging FSA staff to promote more active use of the no-action lettersystem, such as by indicating receptivity to no-action letter requests to firmsthat seek oral advice on how to interpret Japanese laws, especially on
matters where the FSA’s internal interpretation is settled but no public
interpretation is available.

2.

Making more active use of the interpretive letter system, which allows
interested parties to seek interpretations on issues beyond those covered by
the no-action letter system and may include requests for clarification of laws
and regulations governing existing products and services. Specifically, theUnited States recommends that Japan use the interpretive letter system toprovide written interpretations on issues about which FSA officials havereceived informal oral inquiries and about which there may besome misinterpretation; and publish both positive and negative responses tono-action letter requests.

Establish other means to provide written interpretations of Japan’s financial lawseven when an interpretation has not been formally requested.

Annex - 17

C.

A transparent and predictable rule interpretation and inspection process is critical tosound development of financial markets and to the appropriate balance among
consistency, innovation and consumer and investor protection. The United Statesencourages the FSA to consult with foreign financial institutions and financial
sector industry associations regarding concerns or potential improvements related tothe inspection process, recognizing the sensitivities that individual companies may
have regarding disclosure of company-specific inspection experiences.

Annex - 18

COMPETITION POLICY
I.

Improving Antimonopoly Compliance and Deterrence
A.

B.

C.

Strengthen Measures to Address Hard Core Cartel Violations. In order to boost
deterrence against hard core cartels, amend the Antimonopoly Act (AMA) to:1.

Augment the base surcharge level for cartel and bid rigging behavior to aminimum of 15 percent of sales attributable to the unlawful practices, atleast for companies that play a leading role in the conspiracy;

2.

Extend the current three-year statute of limitations for the application ofcease and desist orders and surcharge payment orders to five years from thedate of the last unlawful act;3.

Increase the maximum prison sentence for violations of Article 89 of the
AMA to five years, and thus the statute of limitations to five years; and4.

Ensure that all companies that are majority-owned by the leniency applicant
and, where appropriate, the parent of the leniency applicant, can jointly filea leniency application and be assigned the same order of priority.

Minimize Unintended Deterrence of Procompetitive Unilateral Conduct. In order tominimize over-deterrence of procompetitive unilateral conduct:
1.

Maintain the current system of remedying unfair trade practices and theexclusionary type of private monopolization through the imposition ofcease-and-desist orders, and private damage remedies, rather than throughthe imposition of surcharges.

2.

Ensure, if Japan nonetheless decides to extend surcharges to certain unfair
trade or exclusionary monopolization practices, thata.

Any such practices are clearly anticompetitive and are described by
the AMA or JFTC enforcement guidelines with sufficient detail sothat firms will know in advance that if they engage in specificconduct they will be subject to surcharges; andb.

The amount of any surcharges applicable to such conduct will be
determined by the JFTC in a flexible manner that takes into account,among other factors: (a) the difficulty enterprises may have indistinguishing lawful unilateral conduct from unlawful
anticompetitive behavior, (b) the seriousness and extent of theviolation, and (c) the degree of harm to consumer welfare.

Eliminating AMA Exemptions. To further promote competition in the Japanese
economy for the benefit of consumers:
Annex - 19

D.

E.

II.

1.

Complete by the end of JFY 2008 a review of the AMA exemption system
for air carriers in the international aviation sector being conducted by the
Study Group on the Optimal System of AMA Exemptions established by the
Ministry of Land, Infrastructure, Transport and Tourism (MLIT), with aview toward introducing legislation in the next regular session of the Diet toeliminate antimonopoly exemptions in the international aviation sector; and2.

Complete by the end of JFY 2008 an MLIT study of the continued necessityof the existing or a more limited antimonopoly exemption for international
shipping.

Improve Pre-Merger Notification Procedures
1.

Eliminate the post-stock acquisition notification requirements under the
AMA and adopt a system in which mergers and stock acquisitions are, in
principle, treated the same for purposes of pre-transaction notification
obligations; and2.

Reconsider the proposed revisions to the pre-merger notification thresholds
from the perspective of ensuring that they are consistent with the thresholds
adopted by other developed countries.

Strengthen JFTC Economic Analysis Capabilities. Give priority to hiring andutilizing in JFTC investigations economists with post-graduate degrees in industrialorganization, and consider the appropriateness of establishing an economic analysis
division within JFTC to provide assistance to all JFTC Divisions responsible for
enforcing the AMA.

Improving Fairness and Transparency of JFTC Administrative and Investigatory
Procedures
A.

Enhancing Hearing Procedure Credibility and Transparency. To assure the public
and business community that JFTC hearing procedures are fair and impartial:
1.

Complete by the end of JFY 2008 a review of the ex-post hearing
examination system in its entirety, with a view to submitting legislation in
the next regular session of the Diet, or taking other necessary measures
within 2009, that will ensure that respondents in JFTC investigatory andenforcement procedures are afforded procedural fairness in the JFTC
decision-making and appeals process; and2.

Revise the JFTC Rules on Hearings by the end of JFY 2008 to:a.

Require that the panel of hearing examiners for each public hearing
includes at least one hearing examiner who is a legal professionaland not a career JFTC official, and implement other appropriate
Annex - 20

measures that will provide the public with confidence that hearing
examination decisions are fair; andb.

B.

Prevent persons with a conflict of interest in a particular matter fromacting as a hearing examiner in that matter, including by
disqualifying as a hearing examiner persons with ties to the
respondent or to any other person or entity affected by theproceedings, with a financial interest in the outcome of a particularcase, or with any other conflict of interest.

Increasing Fairness of JFTC Investigatory Processes. To provide confidence to thebusiness community that JFTC investigation procedures will be conducted inaccordance with generally-accepted notions of fundamental procedural fairness:
1.

Conduct a review of JFTC investigation procedures from the perspective ofprocedural fairness, as recommended by the Expert Committee on FDI
Promotion, and issue a report in 2009 on what measures are necessary, inlight of good international practice, to improve procedural fairness in JFTC
investigations. Ensure that the review examines, among other issues,policies regarding:a.

Procedures ensuring that administrative and criminal searches andseizures are limited to evidence reasonably related to the particularinvestigation;b.

The ability of firms subject to search and seizure to review and/or
obtain copies after the search and seizure of all evidence seized fromtheir offices;c.

The extent to which attorneys should be allowed to be present during
various investigation procedures; andd.

The provision of sufficient time for foreign respondents of proposed
JFTC orders to review the evidence JFTC intends to use against
them, taking into account the need to translate the evidence provided
to the foreign respondent by JFTC.

2.

Establish in 2009 a mechanism within JFTC to resolve complaints that rules
providing for procedural fairness have not been abided by fully in aparticular matter;

3.

Revise JFTC Rules on Administrative Investigation procedures by March2009 to ensure fundamental fairness in the issuance of warnings and the
publication of the names of warning recipients;

4.

Introduce rules and procedures for identifying documents containing
communications between an attorney and his or her client relating to theAnnex - 21

provision of legal advice that should be treated by JFTC as confidential
under applicable law and that therefore will be protected from disclosure by
JFTC; and5.

III.

Strengthen procedures for safeguarding business confidential information
possessed by JFTC, including by amending the AMA to allow JFTC to
restrict access by third parties to such information in the case record and by
ensuring that evidence provided to plaintiffs in private damage or injunction
litigation does not contain such information.

Addressing Bid Rigging
A.

Prevent Conflicts of Interests in Procurement. Strengthen laws and other rules
aimed at eliminating conflicts of interests of government officials at the central andlocal level that may contribute to the facilitation of bid rigging on government
tenders.

B.

Improve Efforts to Eliminate Government-Assisted Bid Rigging. Implement
measures by the end of JFY 2008 that will increase the effectiveness of Japan’s
efforts to eliminate government-assisted bid rigging (kansei dango), including
additional measures to uncover instances of kansei dango.

C.

Expand Administrative Leniency Programs. Promote the adoption by all central
and local government entities of an administrative leniency program thatsignificantly or proportionately reduces the period of suspension from bidding forcompanies admitted into JFTC’s Leniency Program.

D.

Improve Procurement Practices
1.

Expand the use by central government agencies, public corporations andmunicipalities of the Overall Greatest Value Method for awarding contracts;
and2.

Provide incentives that will encourage local governments to take measures
to promote proper tendering and contracting for public works, including by
expanding the general open bidding system, installing electronic bidding
systems and establishing windows to receive complaints regarding bidding
practices, including incidents of bid rigging.

Annex - 22

COMMERCIAL LAW AND LEGAL SYSTEMS REFORM
I.

Promoting Cross-Border Mergers and Acquisitions (M&A)
A.

Implement the Recommendations of the Expert Committee on FDI Promotion. In
accordance with the recommendations of the Expert Committee on FDI Promotion,
which were submitted to the Council on Economic and Fiscal Policy on May 20,
2008, announce strong measures to encourage more cross-border M&A activities inJapan, including by completing and publishing by June 2009:1.

An analysis of why the triangular merger technique has not been used more
frequently by foreign investors in Japan;2.

A systematic review of current tax rules and other aspects of the legal
system applicable to M&A that may be impeding greater cross-border M&A
activities, with a view towards ensuring:

3.

a.

Predictability and ease of use of such rules and other legal
provisions, andb.

The availability of reasonable qualifying rules for tax-deferredtreatment of cross-border M&A transactions, consistent with theneed to prevent tax abuse, including with regard to (i) triangularmergers, including the recognition of gain by the acquired company
in a cash transaction; (ii) reverse triangular mergers; and (iii) stock
for asset exchanges that use the stock of the foreign parent
corporation to acquire substantially all of the assets, and to assume
substantially all of the liabilities, of a target company; andRecommendations on how those rules and/or other legal system conditions
should be modified to encourage and facilitate greater cross-border M&A
activities in Japan.

B.

Adopt Reasonable Qualifying Rules for Tax-Deferred M&A Transactions. Basedon the conclusions and recommendations of the above-recommended review,
include in the government’s JFY 2010 proposed tax amendments any changes
determined to be necessary and appropriate to promote greater cross-border M&A
activities in Japan.

C.

Protect Shareholder Interests in Anti-Takeover Measures
1.

Disseminate to the business sector the conclusions and recommendations of
the Corporate Value Study Group (CVSG) with respect to appropriate
corporate practices regarding the adoption of anti-takeover measures andprovide training to Japanese corporations in implementing such conclusions
and recommendations.

Annex - 23

D.

II.

2.

In accordance with the CVSG’s conclusions that management has theobligation to make responsible judgments about the attractiveness of
takeover bids from the standpoint of the interests of shareholders, require, or
provide effective incentives to, boards of directors, such as the limitation of
liability for breaches of fiduciary duties, to establish a committee composedof independent directors, rather than an outside committee composed of
non-directors, to review and provide its views and recommendations on any
takeover bid received by the company, as well as to include in the “position
statement report” required by the amended Tender Offer System such views
and recommendations and, if applicable, the reasons why those views andrecommendations were not adopted by the full board.

3.

Take adequate measures to ensure that shareholder interests are adequately
protected when firms engage in cross-shareholding arrangements, including
through necessary revisions to disclosure requirements and accounting rules.

4.

Encourage the stock exchanges to put in place stronger measures by early2009 to ensure that shareholder interests are not harmed by the adoption or
execution of anti-takeover measures in a problematic manner, including (a)stronger disclosure rules on the adoption and actual operation of antitakeover measures, and (b) incorporation of the recommendations of the
CVSG concerning anti-takeover measures into stock exchange rules andstock exchange reviews of proposed anti-takeover measures by listedcompanies.

Adopt Simple Redomestication Procedures. Evaluate and reach conclusions by
March 2009 on feasible solutions that would enable foreign companies to use a
simple procedure to merge or convert into a Japanese corporation.

Strengthening Good Corporate GovernanceA.

Ensure the Independence of Outside Directors. Submit amendments to theCompany Law by the end of 2009 that replace for public companies therequirement to appoint outside directors or outside auditors (kansayaku) with arequirement to appoint independent directors or independent kansayaku. Include in
those amendments a definition of “independent director” (and “independent
kansayaku”) that, in addition to the exclusions contained in the current “outside
director” definition, exclude any person who:1.

Has a “material relationship” with the company, including a person who (a)has had significant transactions with the company or is an employee of othercompanies that have had a significant business relationship with thecompany, (b) has an immediate family member who has had significant
transactions with the company or is an executive officer in a company thathas a significant business relationship with the company, or (c) is an
employee, director or auditor of the parent company; orAnnex - 24

2.

The board of directors has not affirmatively determined to have no material
relationship with the company.

B.

Provide Authority to Delegate Certain Decision-making Authority to Committees
Composed of Independent Directors. Amend the Company Law to give explicit
authority to the board of directors to delegate certain decision-making functions to acommittee composed solely of independent directors, with the clear stipulation thatboard members are not released from their fiduciary duty to set up such committees
appropriately and monitor their activities and results.

C.

Take Broad-Reaching Measures to Strengthen Corporate Governance. Implement
the Financial Services Agency’s (FSA’s) “Plan for Strengthening theCompetitiveness of Japan’s Financial and Capital Markets” by taking broadreaching measures by March 2009 to strengthen corporate governance, including:D.

1.

Completing a broad examination of the current legal system from thestandpoint of strengthening corporate governance of listed companies,
including through the solicitation and consideration of views from theforeign business community, institutional investors and other interested
parties, and publishing a report that identifies legislative and/or othermeasures necessary to accomplish that goal;

2.

Completing a review of the implementation of the internal control reporting
system and implementing measures to revise or clarify the standards forinternal corporate controls; and3.

Encouraging all of the stock exchanges to improve corporate governance of
their listed companies by drawing up a road map by the end of 2008 of
measures to strengthen and enhance the corporate governance provisions of
the relevant stock exchange rules and guidelines, and implementing thosemeasures by June 2009.

Ensure Sufficient Protection of Minority Shareholders
1.

Revise the Company Law or other appropriate laws to establish a clear
fiduciary duty of loyalty on directors and controlling shareholders thatwould address duties regarding (a) self-dealing, including transactions
between the controlling party and the company, (b) squeeze outs of minority
shareholders, and (c) the appropriation of corporate opportunities.

2.

Encourage the stock exchanges to develop and implement by March 2009
comprehensive measures, including revision of their listing and other selfregulation rules, to increase the effectiveness of such rules in line with best
global practices in ensuring that minority shareholders are not unreasonably
disadvantaged by the actions of the board of directors or other shareholders.
Specifically, encourage the stock exchanges to strengthen their rules relating
to the:Annex - 25

E.

Dilution of the value and/or voting rights of existing shareholders
through improper issuance of new shares, third party allocations thatcan result in a change of control, reverse stock splits and otherpractices; andb.

Appointment of a sufficient number of independent directors who
can represent the interests of minority shareholders, including withregard to listed companies that have one controlling shareholder.

Encourage Active and Appropriate Proxy Voting
1.

III.

a.

In order to facilitate the smooth exercise of proxy voting by institutional andother investors, implement, through government laws or regulations or
through Japanese stock exchanges rules, measures to require, or provide
effective incentives to, all publicly listed companies to:a.

Participate in an electronic shareholder voting system;b.

Ensure that the notice of shareholder meetings and referencematerials necessary for exercising voting rights, including proxymaterials, is provided to shareholders at least three or four weeks
before the relevant meeting; andc.

Disclose to shareholders the full results of proxy voting – including
the number of votes for and against, and the number of abstentions –for each resolution voted upon at the annual or extraordinary
shareholder meetings, including votes for reappointment of company
directors.

2.

Takes measures through the Ministry of Health, Labor and Welfare and the
FSA to ensure that pension fund managers and investment managers areaware of and fulfill their fiduciary duties to exercise proxy voting rights forthe benefit and solely in the interest of the beneficiaries of their respective
investment accounts.

3.

Require, either through FSA regulation or the rules of the relevantsupervisory associations, that investment managers and other managers thatmanage investments for a large number of beneficiaries, disclose, at least to
their shareholders and ultimate beneficiaries, their actual proxy voting
record – including whether they cast a vote, and if so, whether they voted
for or against, or abstained – on each resolution proposed at shareholder
meetings of each publicly-listed company in which they have invested.

Achieving Legal System Reform
A.

Promote the Provision of International Legal Services in Japan
Annex - 26

B.

1.

Introduce legislation in the next ordinary session of the Diet that will permit
registered foreign lawyers in Japan (gaiben) to form professional
corporations on the same basis and with the same benefits, including theability to establish branch offices, as professional corporations for Japaneselawyers (bengoshi), while ensuring the freedom of gaiben that form
professional corporations to enter into or maintain partnership arrangementswith bengoshi, whether or not each bengoshi has formed a professional
corporation (bengoshi hojin) that are equivalent to partnership relationships
now possible among unincorporated gaiben and bengoshi.

2.

Allow all law firms, including foreign law firms and their bengoshi andgaiben partners in Japan, to establish multiple branch offices in Japan
without regard to whether they have formed a professional corporation.

3.

Complete by March 2009 a study by the Ministry of Justice (MOJ) of thelegal implications of bengoshi becoming members of international law
partnerships, including by research on the actual practice of international
legal partnerships, and take steps to ensure that there are no legal or bar
association rule impediments to bengoshi, whether in solo practice, inpartnership with other bengoshi or in partnership with gaiben, becoming
members of an international partnership of lawyers outside of Japan.

4.

Complete by March 2009 MOJ’s research into whether measures canappropriately be taken to provide greater legal certainty regarding the abilityof gaiben to act as neutrals, or to represent parties, in all international
alternative dispute resolution proceedings taking place in Japan, including
all arbitrations that are governed by non-Japanese law, and take steps to
implement within 2009 any such measures.

5.

Ensure that Nichibenren and the local bar associations approve registration
requests for new gaiben applicants within, in principle, three months of theoriginal application date to MOJ and no later than two months after theapproval date by MOJ.

6.

Remove the geographical limitation that still applies in relation to satisfying
the three-year experience requirement for registration as a gaiben, so that all
experience by a foreign attorney working in Japan for a bengoshi or gaiben
is fully counted toward satisfying the three-year experience requirement.

Facilitate Criminal Prosecution of Trade Secret Theft. In order to encourage
victims of trade secret theft to cooperate with prosecutors in bringing criminal
charges against the wrongdoers, introduce a new procedure that will ensure that thecontent of a trade secret will not become open to the public in a criminal trial for
trade secret theft, such as by allowing a witness who is expected to disclose a trade
secret to be examined without the attendance of the courtroom audience, and thenproviding a summary of that testimony that protects the trade secret in open court.
Annex - 27

TRANSPARENCY
I.

Public Input into Policy Development – Advisory Groups. Further steps by Japanremain vital to ensure the openness and transparency of advisory councils (shingikai) andother government-commissioned study groups (benkyokai, kenkyukai, etc.) that arecommenting or making recommendations on policy and regulatory matters. The UnitedStates continues to strongly urge Japan to supplement general guidance for advisory
councils outlined in an April 1999 Cabinet Decision with specific requirements that set
predictable transparency standards in the creation and management of all advisory councils
and groups, including those that:
A.

B.

C.

II.

Enhance publicly accessible information about advisory councils/groups byrequiring related Ministries and Agencies to:
1.

Make public a notice of intent to form advisory councils/groups andinformation about the process for their establishment;

2.

Ensure that Japan’s centralized, publicly accessible electronic list of alladvisory councils/groups and their members is inclusive of all governmentappointed advisory councils/groups; and3.

Make detailed minutes of advisory council/group meetings and meeting
materials publicly available in principle.

Require related Ministries and Agencies to provide interested parties theopportunity to provide input into the deliberations and recommendations ofadvisory councils/groups, including by:
1.

Ensuring that all interested parties have meaningful opportunities toparticipate in such councils/groups to the maximum appropriate extent,
including throughout the deliberations by such councils/groups; and2.

Providing ample advance public notice prior to council/group meetings toenable interested parties to prepare for and attend discussions.

In addition to steps outlined above, the United States continues to recommends thatJapan, on a centralized basis, develop before the end of 2009 a guide of bestpractices to improve advisory council/group transparency, and actively promote theuse of these best practices by all Japanese ministries and agencies.

Public Comments. As Japan implements its Public Comment Procedure (PCP), theUnited States strongly encourages Japan to monitor the impact of the Administrative
Procedure Law and take new steps to enhance the effectiveness of the system.
A.

To improve the current PCP system, the United States recommends that Japan:

Annex - 28

1.

Make proposed regulations public at the earliest possible time to allow
interested parties sufficient time to analyze issues and prepare comments;

2.

Provide adequate public comment periods (30 days minimum, 60 days inprinciple) and, in cases where an urgent need for a shorter period exists,
provide clear written explanations; and3.

Ensure Ministries/Agencies fully consider comments and allow sufficient
time to incorporate them, as appropriate, into final regulations as well as
respond to submitted comments in a timely, meaningful manner.

B.

The United States recommends that the Japanese Government continue to conduct
surveys of the implementation of the PCP and issue guidance on its
implementation; in addition, undertake a thorough evaluation of the effectiveness ofchanges in the Administrative Procedure Law related to the PCP, publicly report thefindings of that evaluation, and provide opportunities for public input on the system
as a part of that survey process.

C.

Japanese ministries and agencies from time to time have voluntarily opened draft
reports, draft legislation, and other such documents to public comment that are notformally required under the PCP system. The United States welcomes suchproactive steps to heighten transparency whenever taken and encourages Japaneseministries and agencies to continue such practices to the extent possible.

III.

Transparency in Regulation and Regulatory Enforcement. To ensure the private sector
has information about regulations and information necessary to stay in compliance withregulations, including Government interpretations of such, the United States recommends
that Japan require Ministries and Agencies to make public their regulations and any
statements of policy or generally applicable interpretations of those regulations.

IV.

Promote Transparency in the Reorganization of Government Functions. To support
the goal of enhanced consumer protection by ensuring that predictability, effectiveness, andfull clarity in Ministry and Agency roles and responsibilities are fully secured in the
proposed re-organization of government functions relating to consumer protection, takesteps to secure transparency throughout the process including by, for example:

V.

A.

Opening draft legislation, draft regulations, and other aspects of the rulemaking
process to meaningful public input and comment to the extent possible before final
decisions are made; andB.

Ensure that related advisory council/group processes related to the establishment
and functioning of a new organization are made fully transparent and open tomeaningful public input.

Foreign Translations of Japanese Laws. The United States encourages Japan to continue
with its program of translating into English its laws of greatest interest and, as it does so,continue to closely consult with the foreign business community.
Annex - 29

OTHER GOVERNMENT PRACTICES
I.

Government Practices Relating to Agriculture. The United States looks to Japan toensure that it is complying fully with its international obligations in agricultural trade andthus adopt science-based, international standards in its import regimes for all agriculturaland food products. In this regard, the United States recommends that Japan take allnecessary additional steps to enhance the efficiency of its trading environment and thetransparency of relevant rules and regulations for agricultural products, including by:A.

Implementing a Maximum Residue Limits (MRL) regime that ensures that any
mitigating measures are the least trade restrictive possible, provide national
treatment to imports, and are in accordance with international practices.

B.

Applying science-based standards to assess the safety of production substances usedon organic crops and to modify the current pesticide residue policy with the goal ofenhancing organic trade.

C.

Completing the review of 46 food additives that are recognized as safe by Joint
FAO/WHO Evaluation Committee on Food Additives and used throughout theworld. To date, the reviews of 24 food additives have not been completed.

D.

Completing bilateral work already underway to implement a plant quarantine
system that harmonizes the classification of plant pests and diseases based on theInternational Plant Protection Convention standards for official control and risk
analysis.

E.

Applying international practices to Japan’s enforcement program for pre-harvestand post-harvest MRL testing for specific pesticides by not considering post-harvest
pesticides as food additives through the implementation of a single MRL for preand post-harvest use patterns.

II.

Wind Power Projects. Consolidate regulation and oversight of wind power unit
construction under a single regulatory authority.

III.

Special Zones. The United States requests that Japan further expand the Special Zones for
Structural Reform program and, wherever possible, apply Zone measures nationwide.

IV.

Consular Issues
A.

Re-entry Permits. The United States encourages Japan to take steps to change
immigration regulations so as to require re-entry permits only for trips outside
Japan that are of particularly long duration, such as those lasting a year or longer.

B.

Domestic Employee Visas. American citizens living in Japan complain that there
are unreasonable restrictions on the visa issuances of business executives'
personal/domestic employees. The United States requests that Japan give due

Annex - 30

consideration to such concerns within the foreign resident community and workwherever possible to find solutions to improve the situation.
V.

VI.

Insurance Cooperatives (Kyosai). The United States recommends that Japan adopt
measures to improve the kyosai system of insurance providers. Kyosai hold a significant
market share in Japan’s insurance market and compete directly with Financial Services
Agency (FSA) regulated insurance providers while avoiding many of the regulatory
safeguards required of FSA-regulated insurance providers. Improving the regulatoryenvironment for kyosai will benefit consumers and the Japanese insurance market byhelping to ensure a sound and transparent regulatory environment.
A.

Ensure that within five years from the date of enforcement of the Small Amount
Short-term Insurance Provider (SASTIP) system (April 2011), the FSA conduct a
review of the SASTIP system as stipulated in the Amended Insurance Business Law(IBL). To contribute to an effective review of the SASTIP system, the review
should provide relevant information and meaningful opportunities for insurancecompanies, including foreign insurance companies, and other parties concerned toparticipate. Such kyosai, to the extent that they directly compete with FSA-licensed
insurance companies, should be regulated as insurance companies under the IBL
and treated consistently with FSA-regulated insurance providers. Remaining
unregulated kyosai should be monitored by the FSA to determine if they should be
subject to the IBL.

B.

Evaluate the consistency of regulation and supervision among kyosai that are
regulated by various ministries other than the FSA to determine conformity to FSA
standards of supervision for private insurance service providers. Such a review
should be undertaken in the near-term and in a transparent manner with meaningful
opportunities for interested parties to express and exchange views.

C.

Ensure the establishment of equal conditions of competition by requiring kyosai
regulated by various ministries to: (1) pay the same taxes as their private-sector
competitors; (2) contribute to a safety net system to protect depositors andpolicyholders from potential failures; (3) follow the same rules and regulations as
FSA-regulated insurance companies including the same reserving rules; and (4)submit to FSA supervision.

Bank Sales of Insurance. In September 2007, the FSA found “no significant violations”
of the safeguards with regard to banks’ insurance sales practices and fully liberalized thebank sales channel on December 22, 2007. Accordingly, the United States recommends
that Japan promptly conduct a review of market conduct rules, including the limits on salesof first and third sector products and treatment of customer data (including Insurance
Business Law Enforcement Rules, Article 212), to ensure they do not limit the bank sales
channel’s effectiveness or impede consumer convenience. While the FSA’s has committed
to conduct such a review within three years, the situation calls for a more expedited review.
Further revision of market conduct rules would maximize consumer benefit by promoting
consumer choice, which is key to achieving the goal of increased financial competitivenessAnnex - 31

and ensuring broader access to products by consumers and to the market by foreign andother financial services suppliers.
VII.

Policyholder Protection Corporation (PPC). The United States requests that Japan adopt
measures to improve the life and non-life PPC to help ensure that a more efficient,sustainable safety net system is created before the current system expires, such as by:A.

Strengthening incentives to utilize flexible approaches and encourage market-based
solutions by shifting to a post-funding system, while exercising measures to use the
PPC to ensure the soundness and integrity of the financial system.

B.

Considering the establishment of a safety-net for regulated insurance cooperatives(kyosai) through contributions to the PPC. Regulated kyosai, with a significant
portion of the policies in force in Japan’s insurance market, are not required by
Japan to pay into the PPC, unlike insurance companies regulated by the FSA.

C.

Continuing to uphold its commitment to provide private sector interested parties,
including foreign insurance companies, with information on their review of the
PPC, as well as meaningful and timely opportunities to express and exchange
views, including an opportunity to present to the FSA’s related advisory groups.

VIII. Domestication of Foreign Insurance Operations. The United States recommends thatJapan take measures to ensure foreign incorporated insurance companies operating
branches in Japan that wish to transfer business operations to a Japan-incorporated entity
can do so in a seamless manner that protects policyholders and creditors while ensuringbusiness continuity. Namely, revise the IBL portfolio and transfer provisions to:

IX.

A.

Create a system to permit “overnight” reorganization by eliminating or creating
exceptions to the sales blackout rule.

B.

Establish statutory disclosure, notice and deemed approval procedure with allcreditors.

C.

Allow the transferee entity to assume all assets and liabilities of the transferring
entity in transactions approved by FSA and creditors.

D.

Permit a “deemed license” (minashi menkyo) assumption of regulatory licenses andapprovals on condition that the transferee entity can demonstrate in the FSA reviewof the transaction that it will satisfy the same prudential conditions and businessmethods as the transferor after the transfer’s completion.

Independent Agents. The United States requests that Japan consider new measures toincrease the competitiveness of third-party distribution channels for insurance products,
such as by taking steps to mitigate the impact of taxes levied on transactions between
independent agents and financial institutions that do not apply in cases of direct sales.

Annex - 32

PRIVATIZATIONI.

Privatization of Japan Post. The United States recognizes the continued efforts by Japan
to implement the privatization of Japan Post and welcomes all steps to ensure consistency
with market-based principles and transparency. As the process of privatization continues,
the United States urges Japan to continue to take all necessary measures to ensure
equivalent conditions of competition between the new Japan Post entities and the private
sector, consistent with the Postal Privatization Law.
A.

Level Playing Field for Postal Savings and Postal Insurance. As of October 2007,
the Japan Post companies commenced with the privatization process, which
requires Japan Post Bank and Japan Post Insurance to cease offering products thatcarry government guarantees and that they be required to meet the same tax, legal,
and regulatory obligations and be subject to the same supervision and disclosure
standards as private sector companies. The United States urges Japan to take thefollowing steps to help ensure equivalent conditions of competition between the
new Japan Post entities and private sector counterparts, consistent with the Japan
Post Privatization Law:
1.

Ensure sufficient personnel and other resources from the regular supervisory
staff of the Financial Services Agency (FSA) are provided to ensure the
FSA can properly regulate the postal financial entities in a mannerconsistent with private sector firms on a national treatment basis with othermarket participants.

2.

Take measures to ensure that Japan Post Network’s relationship with theJapan Post Bank and Japan Post Insurance are undertaken in a fair mannerand on a commercial basis consistent with rules and regulations applicableto the private sector.

3.

Continue to ensure the full and complete separation and financial disclosureof pre-privatized accounts and contracts from accounts and contracts
concluded after October 1, 2007, and that the deposit and reinsurance
contracts are on a commercial basis to prevent any cross-subsidization
between the Incorporated Administrative Agency Management Organization
for Postal Savings Postal Life Insurance (Public Successor Corporation) andpostal financial institutions.

4.

Carefully monitor actual sales practices of Japan Post Insurance and Japan
Post Bank and ensure contracts initiated from October 1, 2007, are notmisrepresented as having a government guarantee, as well as ensure thepostal financial institutions do not leverage their relationship with thegovernment to provide them an advantage over their competitors in themarketplace.

5.

The Japan Fair Trade Commission, as appropriate, should continue to ensurethat the privatization process is undertaken in a manner that promotes freeAnnex - 33

competition and effectively enforce competition policy.
B.

C.

Conditions of Competition and the Introduction of Products. The establishment of alevel playing field between the postal financial institutions and private sector
financial institutions is a cornerstone of the privatization process. A level playing
field will promote efficient markets and contribute to the competitiveness of Japan’s
financial services industry.
1.

The United States continues to urge Japan to ensure equivalent conditions ofcompetition between the postal financial institutions and private financial
institutions before the postal financial institutions are permitted to introduce
new or altered insurance products underwritten by Japan Post Insurance, andoriginate new lending services and other financial products by Japan Post
Bank.

2.

The United States urges Japan to continue to ensure that the privatization
process and implementation conform to Japan’s WTO obligations,particularly the national treatment principle of the GATS.

Level Playing Field for Express Carrier Services. To ensure that “equivalentconditions of competition,” as called for under Article 2 of the Japan Post
Privatization Law, are established between government-owned Japan Post Service
Company and private express carrier companies, the United States urges Japan totake the following steps:
1.

2.

Apply customs clearance procedures for items handled by Japan Post
Service Company that are equivalent to those applied to private express
carriers for similar actions. In particular:a.

Ensure that all items delivered via Express Mail Service (EMS)
follow the “duty declaration” system (including using Nippon
Automated Cargo Clearance, or NACCS) and not the “dutyassessment” system that Japanese regulations currently apply to
EMS; andb.

Until equivalent treatment is achieved for all EMS items, ensure thatJapan’s introduction of the “duty declaration” system forinternational postal items exceeding 200,000 yen, scheduled to comeinto effect by March 31, 2009, is achieved in a manner that (i)provides treatment equivalent to that provided for such items shippedby private sector operators; and (ii) will facilitate as much as
possible the application of this system to all EMS items regardless ofcustoms value.

Take all necessary measures to make public disclosures of the Japan Post
Service Company’s business, including transactions involving Japan Post
Holdings and its subsidiaries, sufficient to demonstrate that crossAnnex - 34

subsidization among the Company’s businesses (including EMS) and withother Japan Post entities does not occur, including by requiring disclosuresof separate business areas to the same standards required of private firms.

D.

3.

Ensure that arm’s length transactions are carried out by the Japan Post
Service Company as recommended by the Postal Services Privatization
Committee (PSPC) by, for example, making specific cost and business data
available for independent verification of the actual existence of arm’s length
relationships by an appropriate organization with sufficient expertise andneutrality to make such determinations. Clarify the PSPC’s role inmonitoring the consistency of measures responding to PSPC
recommendations.

4.

Ensure equal opportunities for all private companies to access the postal
network.

5.

Publicly clarify the range of new businesses that Japan Post Service
Company may pursue in competition with other private companies, if such
were approved by the Japan Post Succession Plan and thus deemed nolonger subject to further approvals/reviews.

Transparency. The United States urges Japan to take all necessary measures toensure the fully transparent implementation of these reforms, including by
providing ample opportunity for consideration of the views of interested parties
before making final decisions, including those that affect the competitiveenvironment in the financial services and express delivery sectors. The UnitedStated specifically urges Japan to take the following measures:
1.

Provide meaningful and timely opportunities for private sector interested
parties to exchange views with relevant Government of Japan officials on
matters pertaining to Japan Post reforms that may affect the private sector.

2.

Seek public input through the use of Public Comment Procedures and othermethods with respect to draft regulations, guidelines, Cabinet and otherorders, and other measures established for matters pertaining to Japan Post
reforms, ensuring that input is fully considered and, where appropriate,
incorporated into draft measures before they are finalized.

3.

Ensure that meaningful opportunities are provided to private sector
interested parties, including U.S. companies, to actively contribute todeliberations by committees or components of committees convened by theGovernment of Japan, including the Postal Services Privatization Committee(PSPC), on issues that may impact the private sector. Additionally, Japan
should ensure that the PSPC’s triennial review, to be concluded by March
2009, on the progress of Japan Post privatization is comprehensive andincludes opportunities for interested stakeholders to express views,
including with respect to the impact of the reforms in the banking,Annex - 35

insurance, and express delivery markets, and on the equivalence ofconditions of competition between the new Japan Post companies andprivate companies.
4.

Ensure that information relating to the planning and implementation ofJapan Post reforms, including the discussion materials and minutes ofrelated government-convened advisory groups, is made public in a timely
way by continued use of web postings, press conferences, and other tools.

Annex - 36

DISTRIBUTION
I.

II.

Airport Landing and User Fees. Although the Narita International Airport Corporation(NAA) and International Air Transport Association (IATA) discussed the reduction oflanding fees and other user charges at Narita in 2005, NAA introduced a method for
calculating landing fees based on aircraft noise and did not agree to significantly reduce
landing fees and other charges. Moreover, some reductions were offset by other increases.
To improve Japan’s business and tourism climate and help boost the economy:A.

Immediately reduce landing and user fees at Narita when NAA renews the current
MOU with the industry, which will expire by March 31, 2009. A similar approachshould be taken at Kansai and Chubu International Airports;

B.

Open the formula used to calculate landing fees at Japan’s international airports to ameaningful public comment process; andC.

Make transparent landing fee calculation at all airports for both domestic andinternational flights. Landing fees and other user charges should be directly related
to the costs associated with the use of airport runways and facilities, as
recommended by the International Civil Aviation Organization (ICAO).

Improving Efficiency in Customs Processing. The United States welcomes that Japan
has formulated an Authorized Economic Operator (AEO) system in Japan. In this regard,
the United States recommends the following measures be applied to customs brokers
whose compliance record is good:A.

Postmortem Declaration of Exports. Introduce a system to allow customs brokers
to make export declaration after export on items of value less than 250,000 yen to
facilitate a speedy, smooth export process given Narita Airport curfew hours.

B.

Freedom to Select Customs Office for Declaration. Allow customs brokers using
Nippon Automated Cargo Clearance System (NACCS) to declare express items at
any convenient Customs Office beyond the territory of the Customs Office, in order
to allow more speedy movement of shipments to their destination.

III.

Consumption Tax Exemption for Authorized Economic Operator (AEO) Exporters.
Although AEO exporters receive customs clearance at their premise and the cargo isregarded as “international cargo,” a 5 percent tax is assessed on the movement of the cargofrom the premise to the airport. Thus, the exporters have to take another process for the
reimbursement of the consumption tax. For a smoother flow of cargo, the United Statesrecommends that Japan establish a system in which AEO exporters are exempted fromconsumption tax payment for the cleared cargo.

IV.

De Minimis. The United States strongly urges Japan to at least double the Customs Law deminimis limit for duty from its currently low 10,000 yen level. This change would reduce
workloads for both Customs and express carriers alike and reduce customs clearance time.

Annex - 37